Cost Ascertainment - Material Cost

1. Procurement and Store Procedures

Ensuring materials are bought, verified, and issued efficiently:

• Purchase Order (PO): Legal offer to a vendor containing pricing, quantities, and specifications.
• Goods Received Note (GRN): Issued by the receiving dock once materials are inspected and verified against the invoice.
• Bin Cards: Log sheets attached to storage bins recording real-time physical inventory additions and issues.

2. ABC Analysis (Always Better Control)

Classifies inventory into three categories based on consumption value:

• Category A: High annual value (~70%), low quantity (~10%). Requires strict daily control.
• Category B: Moderate value (~20%), moderate quantity (~20%). Requires weekly control.
• Category C: Low value (~10%), high quantity (~70%). Requires loose periodic control.

3. Key Inventory Control Formulas

• Reorder Level = $\text{Maximum Consumption} \times \text{Maximum Reorder Period}$
• Minimum Stock Level = $\text{Reorder Level} - (\text{Normal Consumption} \times \text{Normal Reorder Period})$
• Maximum Stock Level = $\text{Reorder Level} + \text{Reorder Quantity} - (\text{Minimum Consumption} \times \text{Minimum Reorder Period})$